On July 20, the Law 22/2015 on auditing of accounts,whose main objective is to adapt Spanish domestic legislation to the changes incorporated by the Directive of the European Parliament 2006/EC and of the Council, of May 17, 2006, on the audit of the annual accounts and consolidated accounts, increasing transparency in the performance of auditors and strengthening their independence and objectivity in the exercise of their basic and fundamental pillar activity for full confidence in the audit report, and thus avoid the symptoms of professional skepticism and the possible appearance of certain conflicts of interest.
Apart from the regulation of the Audit of accounts itself, Law 22/2015 have a fundamental role in commercial law, due to the modifications it introduces in the Commercial Code and in the Capital Companies Law, all these will have their application from next January 1, 2016.
Amendments to the Commercial Code
- It will not be mandatory to provide at the end of the year the statement of changes in net worth, if so established by a legal provision. (art. 34.1) It introduces that at the end of the year, the entrepreneur must formulate the annual accounts of his company, and introduces the novelty that in addition to the statement of cash flows it will not be mandatory, provide the statement of changes in net worth, if so established by a legal provision.
- It is determined that the valuation of assets and liabilities shall be made at their fair value. (art. 38 bis 1) The way of valuing assets and liabilities is modified, establishing that they can be valued at their fair value by deriving the form of valuation to a subsequent regulation.
- The amortization in 10 years of intangible fixed assets and the presumption of useful life of goodwill are established. (art. 39.4) It establishes that intangible fixed assets are assets of defined useful life. Where the useful life of these assets cannot be reliably estimated, they shall be amortized within ten years, unless a different period of law or regulation provides for a different period.
It establishes the presumption of the useful life of goodwill to 10 years.
It obliges in the Annual Accounts Report to report on the term and method of amortization of intangible fixed assets.
- The cases in which consolidation will not be mandatory are extended. (art. 43) It shall not be compulsory to consolidate accounts where the company obliged to consolidate participates exclusively in subsidiaries which do not have a significant interest, individually and as a whole, for the true and good image of the assets, financial position and results of the group companies.
When all dependent companies can be excluded from consolidation for any of the following reasons:
- In extremely rare cases where the information necessary to prepare the consolidated financial statements cannot be obtained for duly justified reasons.
- That the holding of the shares or participations of this company has exclusively as its objective its subsequent assignment.
- That severe and lasting restrictions hinder the exercise of control of the dominant society over this dependent.
It also establishes that a company will not be included in the consolidation when one of the above circumstances concurs.
Amendments to the Capital Companies Act
- The auditor of accounts other than the auditor of the company is replaced by independent experts. The term auditor of accounts other than the auditor of the company is replaced by the broader term of independent experts for some cases such as the valuation in the transfers of the shares (art. 107), the transfers of shares mortis causa, or by liquidation of usufruct (art. 124 and 128), for the exclusion of rights of preference (art. 308), for the valuation of the shares or shares of the partners (art. 353, 3254 and 355), for the deletion or exclusion of the pre-emptive subscription right (art. 417 and 505).
- The exemption to provide the statement of changes in net worth is introduced for those companies that can make a balance sheet in an abbreviated model:
- In the annual accounts (art. 257.3).
- In the Report (art. 261.1).
- The content of the Report is extended. A series of modifications are introduced (art. 260), in the content that must include the Report:
- When there are unequal quotas or participations, the obligation is established to indicate the content of each of them and the content of the rights belonging to each class, in addition to the existing obligation to indicate the number and nominal value of each one.
- The existence of founder’s bonds with indication of the number and extent of the rights conferred, in addition to the enjoyment bonds, convertible bonds and similar securities or rights.
- The number and nominal value of the shares subscribed during the financial year within the limits of an authorised capital, as well as the amount of the acquisitions and disposals of shares or own shares, and of the shares or participations of the parent company.
- It must be indicated when there is a difference between the calculation of the accounting result for the year and the one that would result from having made a valuation of the items with fiscal criteria, because these do not coincide with the accounting principles of mandatory application. Where such a valuation has a substantial influence on the future tax burden, indications shall be given.
- The difference between the tax burden charged to the financial year and to previous financial years and the tax burden already paid or to be paid for those years should also be indicated, in so far as that difference is of certain interest with respect to the future tax burden.
- The average number of persons employed in the course of the exercise with disabilities greater than or equal to thirty-three percent, indicating the categories to which they belong.
- In the event that the company has paid, in whole or in part, the premium of the civil liability insurance of all the directors or of any of them for damages caused by acts or omissions in the exercise of the position, it will be expressly indicated in the Report, with indication of the amount of the premium.
- The movements of the various items of non-current assets.
- Where financial instruments have been valued at fair value, the following shall be indicated: the main assumptions on which the valuation models and techniques are based; changes in the value recorded in the profit and loss account for each class of financial instruments and, in the case of derivative financial instruments, their nature and main conditions of amount and timing and the movements of the reserve at fair value during the period.
- Where financial instruments have not been valued at fair value, the fair value for each class shall be indicated in the terms and conditions set out in the General Accounting Plan.
- The conclusion, modification or early termination of any contract between a commercial company and any of its partners or administrators or person acting on their behalf, when it is a transaction outside the ordinary traffic of the company or that is not carried out under normal conditions.
- Name and registered office of the company that prepares the consolidated financial statements of the group.
- The amount and nature of items of revenue or expenditure the amount or impact of which is exceptional.
- The proposal for the implementation of the result.
- The nature and financial consequences of circumstances of significant relative importance occurring after the balance sheet date and not reflected in the profit and loss account or on the balance sheet, and the financial effect of such circumstances.
- It establishes the nullity of any contractual clause that limits the appointment of certain categories or lists of auditors or audit firms (art. 264.4).
- The auditor of accounts is obliged to evaluate the effective fulfillment of the order in accordance with the provisions of the regulations governing the activity of auditing accounts, as well as the provisions of the Regulations of the Commercial Registry (art. 265.3)
- The possibility of revoking the auditor of accounts or audit firm appointed by the General Meeting or by the Mercantile Registry in companies of Public Interest is introduced. When there is just cause, and provided that they are companies of public interest, shareholders representing at least 5% or more of the voting rights or capital, the Audit Committee or the Institute of Accounting and Auditing of Accounts, may request the revocation to the Judge (art. 266.3).
- The remuneration of the auditor is fixed by the Commercial Registry, when he is appointed by it. The remuneration fixed to the auditor shall be for the entire period for which he or she is to perform his or her duties or, at least, the criteria for its calculation. Before accepting the order and for its registration in the Mercantile Registry, the corresponding fees must be agreed. Auditors may request adequate security or provision of funds on account of their fees before beginning the exercise of their functions (art. 267.3).
- The auditor is obliged to issue a report in case of reformulation of the annual accounts. It establishes that in order for administrators who are forced to reformulate the annual accounts, the auditor must issue a new report on the reformulated annual accounts, provided that the audit report on the initial accounts has been signed and delivered (art. 270.2).
- The obligation to provide an unavailable reserve fund equivalent to goodwill disappears. The need to provide an unavailable reserve equivalent to the goodwill that appeared in the assets of the balance sheet, and that a figure equivalent to 5% of the amount of the goodwill was allocated for this purpose (art. 273.4) is eliminated.
- The obligation to provide the auditor’s report to the Commercial Register together with the annual accounts is extended. The obligation to provide the auditor’s report to the Commercial Registry is incorporated together with the annual accounts, when the company is bound by a legal provision, it has been agreed by a minority or voluntarily having registered the appointment of the auditor in the Commercial Registry (art. 279.1).
- The audit committee is amended. (art. 529 quarters). It introduces an obligation for all members of the Commission to have the relevant expertise in relation to the sector of activity to which the audited entity belongs.
Some of the functions of the Audit Committee are altered:
- Report to the General Meeting in particular on the outcome of the audit, explaining how the audit has contributed to the integrity of financial reporting and the role the commission has played in that process.
- Supervise the development of the audit without breaking its independence.
- They may submit recommendations or proposals to the administrative body and the corresponding deadline for their follow-up.
- Possibility of submitting recommendations or proposals to the management body, aimed at safeguarding its integrity, provided that the mandatory financial information is being prepared or presented.
- Selection, appointment, re-election and replacement of the auditor, responsible for the selection process, in accordance with Articles 16(2), (3) and (5) and 17.5 of Regulation (EU) No 537/2014 of 16 April.
- Establish the appropriate relations with the external auditor and, where appropriate, the authorization of services other than those prohibited, in the terms referred to in Articles 5, paragraph 4, and 6.2.b) of Regulation (EU) No. 537/2014, of April 16, and in the provisions of Section 3 of Chapter IV of Title I of Law 22/2015, of 20 July, audit of accounts, on the independence regime.